China FX regulator says it will use policy measures to stabilize yuan expectations.

China’s foreign exchange regulator said on Friday it would use a comprehensive set of policy measures to stabilize market expectations, at a time when the yuan currency faces renewed negative pressure.

China’s currency The dollar, one of the worst-performing Asian currencies, has lost about 4% this year, on signs of a growing output gap with the United States and a weakening economic recovery.

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Monetary authorities have responded to sharp losses in the yuan in recent weeks by stepping up efforts to defend it by easing rules to allow companies to borrow more abroad and adjust to the daily benchmark, as well as buying and trading yuan by state-owned banks.

“In the future, conditions exist to keep the yuan’s exchange rate basically stable at a reasonable and balanced level,” said Wang Chunying, a spokesman for the State Administration of Foreign Exchange.

“The tools are there to be used. We will follow comprehensive policies, focus on stabilizing expectations, and take various actions based on actual conditions to provide the market with a stable environment and expectations.”

He said previous rounds of external shocks had equipped regulators with experience, tools and measures to deal with such situations.

Wang reiterated that regulators will forcefully prevent sharp fluctuations in the exchange rate, while they have the basis, capacity and confidence to keep foreign exchange market operations stable.

Market participants see such official remarks as verbal guidance against unilateral bets on the currency, and the yuan’s continued weakness could prompt regulators to take further policy steps to shore it up.

The onshore yuan strengthened to 7.1702 per dollar, from around 7.1777 last night.

Separately, the FX regulator said overseas investors bought a net $79 billion worth of onshore yuan bonds in the first half of this year, reversing the net outflows seen for the whole of 2022.